Services sector growth slows due to Omicron wave

Growth in the Irish services sector slowed last month on the back of weaker consumer demand as the State grappled with a new wave of Covid-19 infections, according to the latest PMI data from AIB.

Activity, new work and outstanding business all increased strongly, but at the slowest rates since March. Employment growth eased to an eight-month low, although the 12-month outlook picked up since November.

Inflation in both input prices and charges eased slightly, but remained among the steepest on record.

The headline figure registered 55.4 in December, down sharply for the second month running from 59.3 in November and 63.4 in October. A reading above 50 indicates an overall increase in activity compared to the previous month, and a number below 50 indicates contraction.

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The index has shed more than 11 points since hitting a near-21-year high in July, and the latest figure signalled the weakest rise in service sector output since March. That said, growth has been maintained for 10 successive months and the rate of expansion in December was slightly above the long-run survey average of 55 since May 2000.

For the first time since March, growth of business activity was not broad-based among the four sub-sectors monitored.

There was a decline in activity in the transport, tourism and leisure sector, albeit only marginal (49.2). This marked a turnaround from October when the sector had registered the sharpest expansion.

The decline reflected a fall in new business as consumer demand faltered with a new wave of Covid-19 infections.

Elsewhere, activity rose strongly in technology, media and telecoms (59), albeit at the weakest rate since March. Financial services also registered a sharp increase (58), although at a rate unchanged from November’s six-month low. Growth slowed sharply in business services (53.7) to a pace below the long-run series average.

Overall new business continued to rise sharply, with growth still above the long-run average despite the easing. Financial services registered the fastest increase, and was the only sector to post a steeper rate of growth than in November.

Growth in new export contracts moderated to a seven-month low. But companies remained strongly optimistic about growth prospects in 2022, and sentiment picked up slightly.

The trend in outstanding business followed that for new work in December, rising for the 10th month running but at the slowest pace since March. A number of respondents linked higher incomplete business to supplier delays and staff shortages. Backlogs rose in three out of four sub-sectors, the exception being transport, tourism and leisure.

Irish service providers continued to expand their workforces in December to meet rising workloads and prepare for new projects in 2022.

The rate of job creation remained much stronger than the long-run average, but moderated to the slowest since April. Solid gains were seen in three sub-sectors, while no change was reported in transport, tourism and leisure.

Cost pressures remained severe in December, linked to fuel, energy, labour, insurance and bought-in goods. The rate of inflation eased, but was still among the sharpest on record.

Similarly, charges were increased at the softest rate in three months, but nevertheless one of the strongest since the series began in 2000.